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It's All State Capitalism

Friday, June 18, 2010

David Brooks, the New York Times resident conservative op-ed writer, is power’s best friend. He always tries to make it look so benign. In a column this week he begins by warning that we should not be fooled by the current friction between the government and BP: “[T]his conflict is really a family squabble. It takes place amid a much larger conflict, and in this larger conflict both BP and the U.S. government are on the same team.”

So far so good. BP and the government are partners and not fundamentally antagonists. But then Brooks goes astray, even forgetting what he’d already written. The end of the cold war “left the world divided into two general camps,” he writes.

On the one side are those who believe in democratic capitalism — ranging from the United States to Denmark to Japan. People in this camp generally believe that businesses are there to create wealth and raise living standards while governments are there to regulate when necessary and enforce a level playing field. Both government officials like President Obama and the private sector workers like the BP executives fall neatly into this camp.

On the other side are those that reject democratic capitalism, believing it leads to chaos, bubbles, exploitations and crashes. Instead, they embrace state capitalism. People in this camp run Russia, China, Saudi Arabia, Iran, Venezuela and many other countries.

So there’s the great divide: democratic capitalism—epitomized by the United States—and State capitalism—epitomized by Russia.

At the risk of getting ahead of myself, notice what’s missing from Brooks’s schema. The free market, in which the State keeps its heavy hands off the people’s economic affairs. Neither of his camps can be described in those terms. In fact, what Brooks has described — albeit most inadequately — are two variants of State capitalism. Calling one of them “democratic” doesn’t alter the facts.

Look at his description of government’s role under democratic capitalism: “governments are there to regulate when necessary and enforce a level playing field.” What country is he living in? Can he really think that this is an accurate account of what government does in the United States? He writes “when necessary” as though such decisions are made — reluctantly, of course — by saintly politicians and bureaucrats who are single-mindedly dedicated to the public interest — and what’s more, they have the keenest insight into what the public interest really is. Do Chris Dodd and Barney Frank come to mind?

Since Brooks concedes that BP and the government are on the “same team,” why does he claim that government regulates only “when necessary”? Or the better question is: Necessary to whom? BP and other powerful corporations connected to the State in myriad ways?

Is he oblivious to the fact that regulations and taxes are more burdensome to smaller and yet-to-be-started companies than to incumbent firms, which means those interventions function as subsidies to big business and barriers to entry and growth for others? So much for leveling the playing field.

And what about the outright subsidies, capital allocation, monetary manipulation, bailouts, patents, eminent domain, and so on ad infinitum? Brooks seems to have no clue that from the earliest days of the Republic, money has talked in the halls of power.

But of course he knows this, so why is he playing dumb?

Statocracy and Plutocracy

The antidote to Brooks’s column is Roderick Long’s excellent paper “Toward a Libertarian Theory of Class” (pdf), which appeared in Social Philosophy and Policy in 1998. Long debunks the idea that if corporations aren’t directly operated by government, the system shouldn’t be called State capitalism. As Long shows, State capitalism has both “plutocratic” (the well-off/well-connected) and “statocratic” (political) elements. It’s a partnership between people inside and outside government. Each vies for dominance, and the balance of power shifts back and forth. But they need each other and, crucially, the government is the more dominant of the two forces, since it has the power to use force legally. Corporate power is derivative of State power. As Long writes:

It is important for libertarians, of whatever ideological stripe, to recognize the existence of both statocratic and plutocratic classes. The relation between them is something like that between church and state in the Middle Ages: their interests overlap heavily but are not identical, so the two will commonly cooperate in holding down the people; but at the same time each wants to be the dominant partner, so they will frequently come into conflict as well. When the plutocracy gains the upper hand, the polity tends to authoritarian capitalism (and sometimes a version of fascism); when the statocracy gains the upper hand, the policy tends toward authoritarian socialism.

Brooks surely knows he hasn’t told the whole story. Could it be that he is part of the propaganda mill that works overtime to maintain the perceived legitimacy of State capitalism by portraying it as democratic and unlike what Russia and China have?

Apparently that legitimacy is wearing thin. Yesterday’s New York Timesreported that “voters perceive both business and government as part of an interdependent system, and it is hard for them to separate out the culpability of either. Mr. Obama acknowledged as much in his speech Tuesday, when he asserted — in his lone criticism of government’s role in the [BP] crisis — that the bureau in charge of monitoring the oil companies had effectively been colluding with them instead.”

That sounds like State capitalism. The people must not be reading David Brooks.

Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.